IRS Should Target Online Sellers, Committee Says

An Internal Revenue advisory committee made up of tax experts from outside the agency recently recommended that the Internal Revenue Service (IRS) strengthen enforcement of current tax law as it applies to online sellers, USAToday reports.

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The committee also recommended requiring sites like eBay and uBid to file duplicate reports of all sales. The advisory panel said that given the rapid growth of online auction sales, it’s likely that “a significant number of those users either choose to ignore income reporting requirements or are unaware of their obligations,” USAToday says.

The panel cited IRS data that estimated non-farm sole proprietors under-report 57 percent of their annual income. The committee also referred to a report by the ACNeilsen International Research, commissioned by eBay, that said 724,000 Americans described eBay as their primary or secondary source of income.

eBay has no obligation to reports sales data to the IRS, and the agency cannot ask for a data dump, the Rocky Mountain News reports. “This is where we have to depend on the honesty of the taxpayer to report these items when they should,” says IRS spokeswoman Jean Carl.

Hani Durzy, an eBay spokesperson, declined to say how the company would respond if required to file duplicate reports on sales, as the committee has recommended. "We’ve always encouraged our sellers to comply with the law, whatever the law might be,” he said, USAToday reports.

Online auction sellers who operate as a business, like the eBay power sellers, may be subject to tax liabilities for income tax, self-employment tax, employment tax or excise tax, the IRS says. Sales may result in capital gains or the seller may have ordinary business income.

Most people who sell items on eBay, however, are selling personal items, says Colin Wells, who teaches eBay classes as a hobby. “A lot of people use eBay to sell items they don’t want or have any use for,” he says, according to the Rocky Mountain News. “That’s where the difference takes place, as far as taxes go.”

The IRS points out that sales of personal use items may involve a reportable capital gain. “If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales. In a garage sale, you generally sell household items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable. Losses on personal use property are not deductible either. However see “Did You Sell Appreciated Assets at an Online Auction” for gain reporting,” the IRS Web site advises.